- U.S. banks tapped the Fed’s Standing Repo Facility for $6.5 billion overnight—the largest single-day use since COVID-19, signaling funding strain.
- Repo rates spiked as Treasury settlements and heavy bill issuance drained reserves, tightening short-term liquidity outside usual quarter-end pressure.
- Fed’s quantitative tightening and falling reserves raise calls to pause QT; policymakers watch SRF use as an early warning of broader stress.
In a stark reminder that even after years of post-pandemic recovery, the plumbing of global finance can still spring a leak, U.S. banks turned to the Federal Reserve’s emergency lending tap on Wednesday, borrowing a whopping $6.5 billion overnight, according to Reuters.
It was the largest single-day haul from the central bank’s Standing Repo Facility since the dark days of COVID-19, excluding those frantic quarter-end scrambles when everyone dusts off their balance sheets.
The move came amid a sharp climb in overnight repurchase agreement — or repo — rates, a barometer for how desperately Wall Street firms are scrambling for short-term cash.
The general collateral repo rate, which tracks the cost of borrowing bucks against safe assets like Treasuries, touched 4.36% during trading on Wednesday before easing to 4.12% by the close, according to data from Curvature Securities.
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That’s up from 4.20% late last Friday, and it peaked at 4.32% on Tuesday — an unusual spike outside the typical month- or quarter-end ritual where banks play hard to get with their liquidity.
At the heart of this week’s jitters? A massive wave of U.S. Treasury settlements sucking cash out of the system like a vacuum.
Wednesday saw $40 billion in bills and coupons due for payment, with another $23 billion slated for Thursday, per Wrightson ICAP’s tally of Treasury financing flows.
When Uncle Sam auctions off fresh debt, buyers — think big dealers, banks, and money market funds — have to pony up real dollars on settlement day.
That money funnels straight into the Treasury’s general account at the Fed, draining reserves from the private sector and leaving everyone else fighting over the scraps.
Add in the Treasury’s recent binge on short-term bills to keep long-bond yields in check, and you’ve got a recipe for temporary tightness.
“This is just more signs that liquidity is slowly, but surely, decreasing,” said Jan Nevruzi, a U.S. rates strategist at TD Securities in New York. “Nothing alarming yet, but if SRF is continuously tapped, the Fed should pay even more attention.”
Nevruzi pointed to Fed Chair Jerome Powell’s recent hints that the central bank’s long-running quantitative tightening — essentially shrinking its balance sheet to unwind pandemic-era stimulus — might wrap up sooner than expected.
“This emphasizes the possible need to announce the end as early as the October meeting,” he added.
Powell himself nodded to these pressures during a speech Tuesday at the National Association for Business Economics in Philadelphia.
“Some signs have begun to emerge that [liquidity conditions are gradually tightening], including a general firming of repo rates along with more noticeable but temporary pressures on selected dates,” he said.
Funding Markets Face a Real Crisis, Again
The Fed’s quantitative tightening program, which has been lopping off up to $95 billion a month from its holdings, has been a deliberate unwind of the trillions pumped in during the crisis. But as reserves dwindle, even routine events like Treasury auctions can send ripples through funding markets.
This isn’t the first flirtation with strain this year. Just last month, on September 15 — smack in the middle of quarterly tax deadlines and more Treasury payouts — banks grabbed $1.5 billion from the SRF, a sign of “mild funding pressure” as the Secured Overnight Financing Rate (SOFR) nudged up to 4.42%, briefly topping the Fed’s 4.40% interest on reserve balances.
Money market funds, key players in the repo game, were hoarding cash for redemptions and snapping up T-bills, leaving less to lend out. “Cash is tight today because money market funds have had less excess to lend,” noted analysts at the time.
And rewind to late September, when quarter-end gamesmanship pushed repo rates higher still, though demand for Fed liquidity tools stayed “tepid.”
A March survey of senior financial officers revealed banks wouldn’t rush to the SRF until repo rates climb about 37.5 basis points above its 4.25% offering rate — a threshold that’s starting to feel within reach.
Zoom out further, and these blips echo the repo market’s wilder past.
Back in September 2019, rates spiked to 10% intraday amid a liquidity crunch, forcing the Fed to inject hundreds of billions temporarily to steady nerves.
Fast-forward to July 2024, when SOFR hit 5.4% — its highest since January that year — after heavy Treasury coupon settlements strained balance sheets and drove inflows to the Fed’s reverse repo facility to $664.6 billion, the most since early January, per BankRate data.
Quarter-ends amplify this, as dealers pull back intermediation to dodge regulatory headaches.
The Standing Repo Facility itself, rolled out in July 2021 as a post-COVID backstop, offers twice-daily overnight loans against collateral like Treasuries — a safety valve meant to cap volatility without the Fed playing whack-a-mole every time.
It’s paired with the overnight reverse repo program, where money funds park excess cash at the Fed; that facility’s usage has plummeted from a $2.6 trillion peak at the end of 2022 to a mere $32 billion by late August 2025, signaling the balance sheet unwind is entering a “new stage” of uncertainty.
Analysts like those at SkyBridge see this as a cue for the Fed to hit pause on tightening this fall, with “massive bill issuance” and falling reserves fueling more “bouts of funding pressure.”
For now, the Overnight Bank Funding Rate sits at 4.10% for October, per Fed data — down from a 2024 peak of 5.33% but still watchful.
Repo Rates Creep Up as Fed’s Liquidity Backstop Faces Test
The New York Fed’s latest SOFR averages, calculated from tri-party, GCF, and bilateral repo transactions, underscore the daily grind: volume-weighted medians ticking up as reserves thin.
Experts like New York Fed’s Julie Remache, in a September speech, stressed the SRF’s role in this “new taxonomy” of monetary tools, where the marginal cost of reserves shapes everything from bank lending to market stability.
As Powell put it, these pressures are “temporary” — but in finance, temporary has a way of lingering if the Treasury keeps flooding the zone with bills.
Wall Street’s watching closely. A full-blown crunch could hike costs for everything from mortgages to corporate loans, but for now, the Fed’s backstop seems to be holding the line.
Still, with QT’s end in sight, Wednesday’s $6.5 billion borrow feels like a quiet warning: liquidity’s not infinite, and neither is the patience for surprises.
Also Read: Treasury Now Says Shutdown is Costing US Economy $15bn Daily
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